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US investors open new offices

ECONOMIC cooperation between the US and Slovakia, countries whose economies differ vastly in size, does not exactly result in a high volume of trade. Nevertheless, the presence of US investors in Slovakia remains visible, while the free trade agreement between the US and the European Union that is currently under negotiation is expected to boost bilateral economic relations.

ECONOMIC cooperation between the US and Slovakia, countries whose economies differ vastly in size, does not exactly result in a high volume of trade. Nevertheless, the presence of US investors in Slovakia remains visible, while the free trade agreement between the US and the European Union that is currently under negotiation is expected to boost bilateral economic relations.

“Trade and economic cooperation between the United States and Slovakia is strong and continues to grow stronger every year,” Matthew Miller, information officer of the United States Embassy in Slovakia told The Slovak Spectator. “Trade numbers have shown steady annual growth, and many US companies which have invested in Slovakia have expanded their presence here in the past couple of years.”

Examples include IBM and AT&T, both of which opened new offices this past year. Miller stressed that these new operations added jobs in Košice, where unemployment has been particularly high. Another US company, Honeywell, is currently staffing a new factory in Prešov where they will manufacture turbochargers for diesel engines. As production ramps up, Honeywell plans to employ nearly 450 in Prešov in the coming years.

The US Embassy sees Slovakia as very appealing to US investors.

“It has a well-qualified labour force, a strategic central location, and generally business friendly policies that have historically made it a natural place for US companies to headquarter some of their European operations, especially tech companies,” said Miller.“However, business leaders and potential investors voice some concerns, particularly noting that transparency issues and corruption, together with a questionable judiciary, hamper their efforts in Slovakia and have impacted their decisions about investment and expansion. Evidence of these concerns are reflected in Slovakia’s poor rankings for investor protection among a number of independent indices and reports.”

In total there are about 120 US companies operating in Slovakia. Richard Dírer from the Slovak Investment and Trade Development Agency (SARIO) specified for The Slovak Spectator that the fastest developing sectors in Slovakia are IT and shared services centres, which are also very attractive to US investors, including IBM, Dell, Microsoft, Hewlett-Packard and AT&T.

“The portfolio of US companies in Slovakia is quite diversified; some of the important sectors are the automotive industry, electrotechnics and the steel industry,” said Dírer.

Based on data from the National Bank of Slovakia, the total volume of foreign direct investment from the US into Slovakia amounted to €535 billion in 2010, but this sum does not include US investments which are officially registered in other European countries, for example U.S. Steel in the Netherlands.

Dírer specified that since 2002, SARIO has participated in 30 successful investment projects with US investors, with investments totalling €467 million. These projects were implemented across Slovakia and created almost 7,200 jobs. For the time being, SARIO is working on three projects with US investors with the total of investments reaching €113.5 million. SARIO has also registered four new investment opportunities, most of which are from the field of shared services centres.

Katarína Špitová from the bilateral trade department of the Slovak Economy Ministry specified for The Slovak Spectator that the factors which affect the decision of American investors to come to Slovakia are just as important for other investors.

“Here ranks especially the tax burden imposed on business activities, law enforceability, the stability of the political situation, copyright protection, tax relief and [investment] incentives,” said Špitová.

The US Embassy expects expansion by US companies to remain strong as long as Slovakia continues to produce capable, well-educated professionals with the skills that US companies need.

“Education is key, and it is important for the Slovak educational system to provide its graduates with the technical skills necessary to compete in today’s marketplace,” said Miller. “We anticipate that the trend of increased trade between our countries will continue as well, especially if we can successfully conclude the Transatlantic Trade and Investment Partnership, a free trade agreement that could significantly boost two-way trade between the US and all of Europe. As a major exporting country, Slovakia can benefit greatly from increased trade with the US.”

Špitová estimates that negotiations over the Transatlantic Trade and Investment Partnership (TTIP) might conclude within two years.

“Slovakia believes that the future TTIP will be a very important element for the strengthening of Slovak-American trade-political relations, and we also expect from it a positive influence on Slovakia’s macro-economic indicators,” said Špitová.

Slovakia expects that the TTIP will boost the EU’s GDP by about 0.5 percent or about €100 billion annually. For Slovakia this means a potential increase of GDP by about 0.3-0.4 percent, or €200-300 million annually.

“The expected increase, with regards to the low share of the US on our exports, will be demonstrated indirectly via increased Slovak exports of sub-deliveries into EU countries and their subsequent exports after assembly from other EU countries,” said Špitová.

The US also views the TTIP as a great opportunity for both itself and Europe.

“Already, the US-EU trade relationship is the world’s largest, accounting for nearly half of global economic output and supporting more than 13 million jobs on both sides of the Atlantic,” said Miller. “Implementing the TTIP would only increase this economic activity.”

While it is too early to speculate on when the agreement might be concluded, the first round of negotiations between representatives from the US and the EU occurred in July in Washington, and the second round is scheduled for December 16-20, added Miller.

During the November 11-15 week, negotiators were scheduled to meet in Brussels to discuss services, investments, energy and raw materials, and regulatory issues.

“The goal of these discussions is truly ambitious: to create a comprehensive agreement that would press for full elimination of tariffs, make substantial progress on reducing unnecessary regulatory costs and non-tariff barriers, and set global standards for services, investment, labour and environment issues, among others,” said Miller. “Both the United States and Europe have sensitivities, and neither side will achieve everything it wants. Individual sectors on both sides of the Atlantic have concerns on how the TTIP might affect their industries, but only a wide-ranging and fully inclusive agreement will have a significant positive impact on our jobs and economic growth.”

The London-based Centre for Economic Policy Research (CEPR) estimates that each additional billion euros in transatlantic trade or services will support an additional 8,000 jobs in the US and 15,000 jobs in the EU, according to Miller.

“It is hard to know what exactly this would mean for US-Slovak economic activity, but it is significant to note that CEPR predicts the industry seeing the biggest relative increase in trade will be the motor vehicles sector, with EU exports to the US expected to increase by 149 percent,” said Miller. “Certainly, Slovakia would stand to benefit from an increase in transatlantic trade involving one of its most important sectors.”

Trade

The US is Slovakia’s 12th biggest export market according to figures from 2012. Slovakia’s exports to the US make up 1.88 percent of its total exports. In terms of imports, the US is Slovakia’s 18th most important partner, with their exports to Slovakia accounting for 0.88 percent of its aggregate imports.

“The volume of bilateral Slovak-US trade fluctuated between 2003 and 2012, the reason for which was the financial crisis and the related drop in demand and the reduction of orders,” Špitová told The Slovak Spectator, adding that the decline from the years 2006 and 2009 halted in early 2010. “Since this time Slovakia’s exports to the US have been gradually increasing. In 2012 they exceeded the level from the pre-crisis years.”

In total, 217 companies export their products to the US market. Most of them are foreign companies based in Slovakia. Špitová sees this as understandable as Slovak companies cannot effectively compete on the US market. Slovakia’s strongest representatives in the US are ESET, JJ Electronic, Slovmag and Konštrukta. Other exporters include Continental Matador Truck Tires, Volkswagen Slovakia, Heineken Slovensko, Elster, Delta Electrionics, IKEA Components, Emerson, Osram, Manga Slovteca and DHL Logistics.